Can AMZN’s Fire TV End the Slump in Amazon Stock?

AMZN's bid to take on GOOG and AAPL comes with some risks

Amazon (AMZN) continues to branch out in a variety of directions, going far beyond e-commerce and into a number of other businesses. Rumors have abounded about what Amazon’s next venture would be, but it appears as though AMZN is zeroing in on the ‘set-top box’ space as its next business segment.

Source: Amazon

That is because Amazon has just announced the release of ‘Fire TV’ to compete with the likes of Apple’s (AAPL) Apple TV, Google’s (GOOG) Chromecast, and Roku, though with a bit higher price at $99. The box plugs in to an HDTV, and it gives users access to a variety of services including Netflix (NFLX), Prime Instant Video, Hulu Plus, video rentals, WatchESPN, and Showtime, just to name a few.

This sounds a lot like the competition, though AMZN’s box looks to have great quality and speed thanks to its impressive technical specs. The unit will have a quad-core processor and, according to the press release, four times the memory of the competition. Whether users will be willing to pay for this extra performance is another matter though, especially given the cheap cost of some of the other products out there.

What sets Fire TV apart?

The biggest difference between Fire TV and its main competitors, besides the specs and the price, is the optional controller which gives much more of a gaming tilt for Amazon’s device. The controller costs just under $40, and Amazon is reportedly developing its own games, while other companies are also slated to debut games at some point as well. Reportedly, the average price of the games will below $2 while free games will also be offered too.

Will this new product impact Amazon stock?

It is hard to say how Amazon stock will be impacted by this move, at least to start. Shares were trading slightly lower in Wednesday’s session following the release, while volume was roughly on par with an average session.

The product looks likely to be either at break-even or (probably) unprofitable for Amazon, at least initially, much like with some of Amazon’s other ventures. However, competition looks to be very intense, and Amazon’s traditional strategy of undercutting on prices doesn’t seem to be in play for this product, so it will be interesting to see if it pays off for the company.

The move does look to give Amazon a wedge into consumers’ living rooms, especially given the company’s relative lack of traction with the Amazon Prime video service. And, unlike some of the competitors, video game sales and other types of content sales on the service—from Amazon’s digital library—could help AMZN to strangle this content market just like they have done in the book side of the content world.

Recent Performance

The release comes as Amazon stock has been under pressure lately, as it was trading over $400 per share in mid January until it hit a significant speed bump to close out the month. Following that, shares of AMZN lost over $50 per share putting them around their current level at about $342 per share.

Earnings estimate revisions haven’t exactly been favorable either as of late, with AMZN falling to ‘sell’ territory. However, we have finally begun to see at least some more positive estimates as of late, helping Amazon stock to move up to a Zacks Rank #3 (Hold) along with a Zacks Earnings ESP in positive territory, which often suggests an earnings beat dead ahead.

Bottom Line

Personally, I think that this, much like many of Amazon’s products, could be a long term winner but will probably need a long runway to takeoff. I also like the video game angle, and the idea of Amazon taking a slice out of this digital content market, which has been a trouble spot (relatively speaking) for the company so far.

So while I think this is probably a great idea for Amazon to get more involved in this part of the content world, any sort of near term impact looks to be muted at best.

But what do you think of the unveiling by Amazon? Can this new product help give them a better foothold in consumers’ living rooms or is this just another break-even product for the retail giant?